Aggregate Production Planning

Dr. Nitin Seth Associate Professor, IIFT, New Delhi

Overview of Planning Levels • Long-range plans – Product and service design – Location / layout – Long term capacity

• Intermediate plans (General levels) – Employment – Output and inventories – Subcontracting and backorders

• Short-range plans (Detailed plans) – Machine loading – Job assignments – Production lot size and order quantities

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Aggregate Plan Aggregate Plan: A statement of a company’s production rates, workforce levels, and inventory holding based on estimates of customer requirements and capacity limitations

Service Industry

Manufacturing Industry

• Staffing Plan

• Production Plan

• Regarding staffs and labor related factors

• Regarding production rates and inventory

Aggregate Production Planning (APP) • Determines resource capacity to meet demand • For intermediate time horizon, 6-12 months • Not feasible to build new facility • May be feasible to hire/lay off workers, overtime, or subcontract • Adjusting capacity OR managing demand

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Aggregate Plan – Managerial Inputs Distribution and marketing Customer needs Demand forecasts Competition behavior

Operations

Current machine capacities Plans for future capacities Workforce capacities Current staffing level

Materials Supplier capabilities Storage capacity Materials availability

Accounting and finance Cost data Financial condition of firm

Aggregate plan

Engineering New products Product design changes Machine standards

Human resources Labor-market conditions Training capacity

Aggregate Plan – Outputs &

& $

Aggregate plan

" #

$% %

!

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Aggregate Planning Strategies • Proactive – Alter demand to match capacity

• Reactive – Alter capacity to match demand

• Mixed – Some of each Balancing demand and capacity over the entire planning horizon

Demand Options • Pricing • Promotion • Back orders • New demand

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Capacity Options • Hire and layoff workers • Overtime/slack time • Part-time workers • Inventories • Subcontracting

Chase Demand Demand

Units

Production

Time

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Chase Approach • Advantages – Investment in inventory is low – Labor utilization in high (overtime)

• Disadvantages – The cost of adjusting output rates and/or workforce levels

Level Production Demand Production

Units

Time

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Level Approach • Advantages – Stable output rates and workforce

• Disadvantages – Greater inventory costs – Increased overtime and idle time – Resource utilizations vary over time

Mixed Strategy Demand

Units Production

Time

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Aggregate Planning Strategies Strategy 1. Chase #1: vary workforce level to match demand 2. Chase #2: vary output rate to match demand 3. Level #1: constant workforce level 4. Level #2: constant output rate

Possible Alternatives during Slack Season

Possible Alternatives during Peak Season

Layoffs

Hiring

Layoffs, undertime, vacations No layoffs, building anticipation inventory, undertime, vacations

Hiring, overtime, subcontracting No hiring, depleting anticipation inventory, overtime, subcontracting, backorders, stockouts Hiring, depleting anticipation inventory, overtime, subcontracting, backorders, stockouts

Layoffs, building anticipation inventory, undertime, vacations

Aggregate Plan to Master Schedule

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Disaggregating the Aggregate Plan

Disaggregating the Aggregate Plan • Master schedule: The result of disaggregating an aggregate plan; shows quantity and timing of specific end items for a scheduled horizon. • Rough-cut capacity planning: Approximate balancing of capacity and demand to test the feasibility of a master schedule.

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Lessons • Aggregate production planning is a powerful tool for resources management • Suitable aggregate production planning strategy for an organization depends on various organizational and environmental factors

Management of Suppliers

Dr. Nitin Seth Associate Professor, IIFT, New Delhi

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Supply Management: Objectives • Support the operational requirements • Effectively and efficiently manage the suppliers and related process. • Understand the methodology for selection/evaluation of suppliers • Develop strategies that improves supply chain efficiency and effectiveness

Process of Buying • Obtaining the right material • In Right quantities • With right delivery (time and place) • From the right source • and at the right price

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Sourcing Decisions: The Make-or-Buy Decision • Outsourcing -buying materials and

components from suppliers instead of making them in-house. The trend has moved toward outsourcing. The Make or Buy decision is a strategic decision.

Sourcing Decisions: The Make-or-Buy Decision- Cont. Reasons for Buying or Outsourcing 1. Cost advantage 2. Insufficient capacity 3. Lack of expertise 4. Quality

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Sourcing Decisions: The Make-or-Buy Decision- Cont. Reasons for Making • • • • •

Protect proprietary technology No competent supplier Better quality control Use existing idle capacity Control of logistics- lead-time transportation, and warehousing cost • Lower cost

Economic Evaluation criteria: Make or Buy

Break Even Chart..1

Total Cost

F

Fixed Cost (F)

0

Volume, X in units

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Break Even Chart..2

Total Cost

Variable Cost (VC)

F

Fixed Cost (F)

0 Volume, X in units

Break Even Chart..3

Total Cost (TC)

Total Cost = F + VC*X Variable Cost (VC)

F

Fixed Cost (F)

0 Volume, X in units (Volume manufactured = volume sold)

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Break Even Chart..4

Total Revenue = Price*X

Total Revenue (TR)

0

Volume, X in units

Break Even Chart..5

Total Revenue = Price*X

TR, TC

Profit

Total Cost = F + VC*X Variable Cost (VC)

F

Loss

0

XL

Fixed Cost (F)

BEP

Xp

Volume, X in units (Volume manufactured = volume sold)

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Break Even point calculations • At Break even point Total revenue = Total cost Thus, Price*X = F + VC*X Break Even Volume (X) =

Fixed cost (F) (Price – Variable cost)

Type of Sourcing a) Sole Sourcing : Only one supplier is available b) Single Sourcing: Planned decision to select one supplier for an item where several suppliers are available c) Multiple sourcing: More than one supplier for an item.

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How Many Suppliers to Use Single-sourcing- a risky proposition. Although trends favor fewer sources, avoid single source.

Reasons Favoring a Single Supplier • To establish a good relationship • Less quality variability • Lower cost • Transportation economies • Proprietary product or process • Volume too small to

Reasons Favoring More than One Supplier • Need capacity • Spread risk of supply interruption • Create competition • Information • Dealing with special kinds of business

Supplier Selection and evaluation

The process of selecting suppliers, is complex and should be based on multiple criteria:

– Technical ability – Manufacturing capability – Quality – Cost – Reliability

– Order System and cycle time – Capacity – Price – Location – Service

OTHER PRACTICAL CONSIDERATIONS

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Supplier Evaluation Cont.

Some Recent Trends

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Local or Global suppliers??? Reasons to Globalize Operations Tangible

Intangible

Reduce costs (labor, taxes, tariffs, etc.) Improve the supply chain Provide better goods and services Attract new markets Learn to improve operations Attract and retain global talent

Global Process Design & Technology • Information technology enables management of integrated, globally dispersed operation • Texas Instruments: 50 plants in 19 countries • Hewlett-Packard - product development teams in U.S., Japan, Great Britain, and Germany • Reduces time-to-market

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Examples of Global Strategies

• Boeing – both sales and production are worldwide. • Sony – purchases components from suppliers in Thailand, Malaysia, and around the world. • GM is building four similar plants in Argentina, Poland, China, and Thailand

Boeing 777 Suppliers Firm

Country

Parts

AeroSpace Technologies CASA Fuji

Australia

Rudder

Spain Japan

Ailerons Landing gear doors, wing section

GEC Avionics Korean Air Menasco Aerospace

United Kingdom Korea Canada

Flight computers Flap supports Landing gears

Short Brothers

Ireland

Landing gear doors

Singapore Aerospace

Singapore

Landing gear doors

Alenia

Italy

Wing flaps

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Management of Suppliers and Distributors • Plans to help achieve company mission • Affect long-term competitive position • Strategic options – Few suppliers – Keiretsu network – Local/Global Suppliers

Keiretsu network : Supplier as Partner Case Volkswagen • Brazilian plant employs 1000 workers – 200 work for VW – 800 work for other contractors: • Rockwell International, Cummins Engines, Deluge Automotiva, MWM, Remon and VDO, etc.

• VW responsible for overall marketing, research and design

quality,

Learning' s : Eicher Motors Pithampur Suppliers to work on shop floor to deliver product

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Strategic Alliance and Supplier Certification Programs Supplier certification programs -one way to identify strategic alliance candidates. -Firms often develop their own formal certification programs, & most require ISO 9000 or similar certifications as one part of the certification process.

Early Supplier Involvement Early supplier involvement (ESI) is perhaps one of the most effective supply chain integrative techniques. Under ESI, key suppliers become more involved in the internal operations of the firm, particularly with respect to new product and process design and design for manufacturability techniques. Value engineering activities help the firm to reduce cost, improve quality, and reduce new product development time.

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e-Procurement Systems E-procurement systems enable the concentration of a large volume of small purchases with a few suppliers in electronic catalogues, which are made available to the organization’s users. Reverse auctions- suppliers enter Web site. At a pre-designated time and date, qualified suppliers try to underbid their competitors and can monitor the bid prices until the session is over.

Typical benefits of the eProcurement System – Time savings – Cost savings – Accuracy – Real time – Mobility – Trackability – Management – Benefits to the suppliers

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Lessons:: Key for successful partnerships • • • • • • • • •

Building Trust Shared Vision and objectives Personal Relationships Mutual benefits Commitment and Top management Support Change Management Information Sharing Shared Measurements Continuous Improvements

Summary and Learning’s • Supplier plays an important role in improving the efficiency and effectiveness of supply chain • Selection and evaluation is a strategic decision • Effective and efficient partnership rests on the pillars of trust.

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Thank you

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